“Why can’t I just pay for my own long term care?”

I get that question frequently, and the answer is: you can.

Self-insuring, or simply deciding you’ve got enough money on hand to pay for your own long term care needs, is a perfectly acceptable strategy. But, this assumes that you know what you’re getting yourself into, and that you understand what self-insuring means. Let’s talk about a few things that you need to consider before you decide to self-insure.

Most of us know, within a few thousand dollars, how much it would cost us to replace our car, or even our house. That’s a predictable expense, something you can put a fairly accurate price tag on. How much will your long term care services cost you? You can’t say. It might be a few thousand dollars, but it could just as easily be half-a-million dollars. There’s just no way to predict it. That makes it hard to say “Okay, I’ve put aside X amount of dollars; this should cover my long term care needs.” That’s the first problem  – will the money you’ve identified as your long term care fund be enough? Most people drastically underestimate how expensive long term care can be.

The second problem is this – are you sure that money’s not going to be needed for anything else, before you need long term care? If you dip into this every time you go on a vacation, or every time you need to buy a new appliance, it’s not going to be there when you need long term care. Your long term care fund has to be used for nothing but long term care, so you need to put it aside and forget it. Again, not always as easy as it sounds.

Finally, what if you have enough money, but it’s not that easy to get to? I’ve had several clients who are very wealthy on paper, but all of their wealth is in real estate. If they needed cash, they’d be hard pressed to get it without either borrowing it or selling a piece of real estate. What if you happen to need it in the middle of a real estate market like the one we’re in now? Uh-oh. What if your money is kept in retirement accounts or investments? You’re going to be taxed on that when you take it out, right? Suddenly, if you’re drawing more than your normal income from these accounts, your taxes are going up. What if your money’s in the market, and the market is down when you need it? Using your own money is often more expensive than the actual care, because of the costs you incur in getting to it.

Self-insuring is a valid approach, but it’s not necessarily an easy or realistic one. Insurance provides you with leverage and access – you turn your relatively small premium into a much, much larger benefit that will be there when you need it. If you’re going to self-insure, make sure you know what you’re up against. Thanks!

And Happy New Year! Kerry Peabody, LTC insurance specialist, Clark Insurance

Is your town considering a property tax deferrment program for senior citizens? An Act to Protect Elderly Residents from Losing Their Homes Due to Taxes or Foreclosure became Maine law July 12.

The 124^th Legislature passed the bill in May,which allows Maine cities and towns to establish a property tax deferral program for senior citizens. Citizens applying for a property tax deferral must be at least 70 years old, lived in their homes for at least 10 years, and have a household income of less than 300% of the federal poverty level, which is about $30,000 for a single person and $42,000 for a couple.

The new law allows towns to let property taxes be deferred until the death of the homeowner or sale of the home.  Then the taxes would have to be repaid within a set period, along with interest at a rate of 0.5 percent above the annually established rate for delinquent taxes.

Now, Maine towns that want to establish a property tax deferral program for their citizens will have to craft a program that is appropriate for the needs of their town and put it forth in a town referendum. There are safeguards for the town, including what amounts to a tax lien placed on the property, to assure that the town has legal standing. Towns working on their programs will have to discover the answers to questions like, what happens if the house is in estate recovery to repay Maine Care? Which repayment takes precedent?

The bill, signed by Gov. John Baldacci on May 20, passed through the Legislature with 136 yeas, 0 nays, and 15 absent. Not much voting along party lines with this one!

If you cruise forums that talk about this law, there’s a lot of writing about how it shifts taxes to other taxpayers, or that the property tax rate is a bad way to fund government in general, or that taxes are simply too high, and lowering taxes for everyone is the answer. Those are all valid points. But in the discussion of this law, remember that it is a local opportunity and individual townspeople control whether or not they think it’s a good idea to allow a property tax deferral for the town elders if requested.

My thinking is that allowing people to stay in their homes is almost always better for society. See if your town has a committee to look into tax deferral for your town, and work through all the questions considering such a program will raise. It’s a great volunteer opportunity!